FSB’s numerical haircut floors framework out ‘soon’
28 September 2015 London
Image: Shutterstock
The Financial Stability Board (FSB) has moved forward with addressing shadow banking concerns, announcing that it will soon publish its framework for numerical haircut floors in non-bank-to-non-bank securities financing transactions.
In a report summarising the talking points from a recent meeting between top officials, the soon-to-be released framework will have an implementation date of the end of 2018
At the same meeting, FSB officials also discussed maximising market liquidity and ending ‘to-big-to-fail’
In its summary, the FSB highlighted the importance of thorough stress testing by funds to assess their ability individually and collectively to meet redemptions under difficult market liquidity conditions.
Securities lending activities of asset managers and funds and potential vulnerabilities of pension funds and sovereign wealth funds were specifically identified by the FSB as “structural vulnerabilities” of asset management that requires further analysis.
The mismatch between liquidity of fund investments and redemption terms and conditions for fund units was top of the list, with operational risk and the challenges in transferring investment mandates in a stressed condition also featuring in its evaluation of market risks.
The total loss-absorbing capacity (TLAC) proposal to be applied to global systemically important banks was recommend by the FSB as a way of mitigating the risk posed by banks deemed as too big to fail.
The FSB has now agreed the draft final principles and the updated term sheet, and is arguing for consistent implementation, over the appropriate timelines, of TLAC as a minimum standard.
The TLAC standard and its timelines will be finalised by the time of the next G20 Summit in November.
In a report summarising the talking points from a recent meeting between top officials, the soon-to-be released framework will have an implementation date of the end of 2018
At the same meeting, FSB officials also discussed maximising market liquidity and ending ‘to-big-to-fail’
In its summary, the FSB highlighted the importance of thorough stress testing by funds to assess their ability individually and collectively to meet redemptions under difficult market liquidity conditions.
Securities lending activities of asset managers and funds and potential vulnerabilities of pension funds and sovereign wealth funds were specifically identified by the FSB as “structural vulnerabilities” of asset management that requires further analysis.
The mismatch between liquidity of fund investments and redemption terms and conditions for fund units was top of the list, with operational risk and the challenges in transferring investment mandates in a stressed condition also featuring in its evaluation of market risks.
The total loss-absorbing capacity (TLAC) proposal to be applied to global systemically important banks was recommend by the FSB as a way of mitigating the risk posed by banks deemed as too big to fail.
The FSB has now agreed the draft final principles and the updated term sheet, and is arguing for consistent implementation, over the appropriate timelines, of TLAC as a minimum standard.
The TLAC standard and its timelines will be finalised by the time of the next G20 Summit in November.
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